BOJ's Kuroda signals targeting longer-dated JGBs

New Bank of Japan governor Haruhiko Kuroda answers questions during a session of the lower house finance committee at the parliament in Tokyo.
Photo: AFP

Bank of Japan Governor Haruhiko Kuroda has said the central bank will seek to push down yields across the curve by purchasing longer-dated government bonds, underscoring its resolve to expand its balance sheet more aggressively to beat deflation.

Kuroda said among future policy options for the BOJ would be to extend the maturity of the government bonds it buys under its asset-buying programme, its key monetary easing pool, to five years from the current three years.

He also said there may be room to boost purchases of riskier assets, although the BOJ's nine-member board will make the final decision at next week's policy-setting meeting.

"We will scrutinise what would be the most effective step, aiming to make full use of the BOJ's capacities," Kuroda told parliament on Tuesday in semi-annual testimony on the BOJ's monetary policy and assessment of the economy.

Kuroda reiterated the BOJ's resolve to use whatever means are available to achieve its 2 per cent inflation target but stressed that expanding base money – or cash and bank deposits – alone is not enough.

"Quantitative easing has a certain effect (on the economy) but we shouldn't rely on that effect alone," Kuroda said, stressing the need to target assets that would be most effective in pushing down borrowing costs and risk premiums.

"The BOJ will seek to expand its balance sheet by purchasing longer-dated assets. It will diversify its asset purchases to push down yields across the curve," he said.

The BOJ is expected to ease policy most likely through increases in purchases of longer-dated government bonds, and debate an overhaul of its policy framework at its next policy meeting on April 3-4, sources familiar with the central bank say.

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Kuroda joined the BOJ last week with a mandate from Prime Minister Shinzo Abe to pursue bolder, unorthodox policies to finally stamp out the deflation that the central bank has struggled to tame for years.

Expectations that Kuroda, a vocal advocate of unorthodox monetary policy, will steer the BOJ toward more aggressive steps to beat deflation have prompted investors to sell the yen, helping push up the dollar to a 3-1/2 year high of ¥96.71 earlier this month.